Hyundai Motor expects vehicle production to rebound in H1 as chip supply improves

© Reuters. FILE PHOTO: The logo of Hyundai Motors is seen at the company's headquarters in Seoul, South Korea, March 22, 2019. REUTERS/Kim Hong-Ji

By Heekyong Yang and Joyce Lee

SEOUL (Reuters) -South Korea's Hyundai Motor Co forecast on Tuesday its vehicle production would rebound in the first half of this year as a global chip shortage is expected to ease gradually from the second quarter.

"The normalization of auto chip supply and demand is expected in the third quarter, when the capacity of semiconductor companies is expected to rise," Executive Vice President Seo Gang Hyun said on Hyundai's conference call.

The shortage will continue in the first quarter due to the spread of the Omicron variant, Seo said, adding it was the prolonged COVID-19 pandemic in Southeast Asia and resulting chip sourcing troubles that pushed Hyundai's sales to less than the targeted 4 million vehicles in 2021.

Southeast Asia is central to the supply of basic chips that drive the world's cars, smartphones and home devices, with Malaysia's chip assembly industry accounting for more than a tenth of a global trade worth over $200 billion. COVID-related lockdowns in the region have disrupted several industries since last year.

Hyundai said it expects a 20% sales jump in its biggest market, North America, in 2022.

Hyundai and its affiliate Kia Corp, together among the world's top 10 automakers by sales, have forecast a 12.1% jump in their combined global sales for 2022, after their sales fell almost 4% short of a target of 6.92 million vehicles last year due to the chip shortages.

Hyundai posted a nearly 50% drop in its profit for the quarter ended December, significantly short of analysts' estimate, mainly due to the payment of corporate taxes.

It reported a net profit of 547 billion won ($456 million), versus 1.1 trillion won a year earlier. That compared with an average analyst forecast of 1.5 trillion won compiled by Refinitiv SmartEstimate.

HIGHER PRICES, OMICRON

Analysts warn that soaring raw material prices, component shortages and logistical bottlenecks caused by the pandemic are likely to further drive up costs in the current quarter.

"It is still difficult to forecast how the chip shortage will pan out ... also there will be other uncertainties involving the spread of the Omicron variant and potential issues related to Ukraine tensions," said Lee Jae-il, an analyst at Eugene Investment & Securities.

Japanese automakers Toyota Motor (NYSE:TM) Corp and Honda Motor Co Ltd have said they plan to curb their production this month due to rising COVID cases and part supply issues.

As supply chain and distribution disruptions continue, delaying deliveries and production, analysts expect Hyundai to raise vehicle prices to mitigate the impact.

Major automakers and dealers, such as Tesla (NASDAQ:TSLA) Inc and Honda Motor Company (NYSE:HMC), have already raised car prices https://www.reuters.com/world/the-great-reboot/inflation-risk-or-profit-engine-high-car-prices-are-both-2021-08-10 over the past year.

Shares in Hyundai Motor fell 1.5% as of 0616 GMT, versus the benchmark KOSPI's 2.7% fall.

($1 = 1,198.7100 won)